Sawyer v. Guthrie

• Decision Date: 02 August 2002
• Docket Number: No. 01-CV-170-B.,01-CV-170-B.
• Citation: 215 F.Supp.2d 1254
• Parties: Paul F. SAWYER, Plaintiff, v. Michael T. GUTHRIE, individually, and d/b/a MTG Operating Company; Express Acquisition Company, a Delaware Corporation, formerly known as 1993 Offshore Limited Partnership, a Delaware Limited Partnership; Torch Energy Advisors Incorporated, a Delaware Corporation; Torch Acquisition Company, a Delaware Corporation; Mission Resources Corporation, a Delaware Corporation, formerly known as TEAI Oil & Gas Company, a Delaware Corporation, Defendants.
• Court: U.S. District Court — District of Wyoming

215 F.Supp.2d 1254

Paul F. SAWYER, Plaintiff, v. Michael T. GUTHRIE, individually, and d/b/a MTG Operating Company; Express Acquisition Company, a Delaware Corporation, formerly known as 1993 Offshore Limited Partnership, a Delaware Limited Partnership; Torch Energy Advisors Incorporated, a Delaware Corporation; Torch Acquisition Company, a Delaware Corporation; Mission Resources Corporation, a Delaware Corporation, formerly known as TEAI Oil & Gas Company, a Delaware Corporation, Defendants.

No. 01-CV-170-B.

United States District Court, D. Wyoming.

August 2, 2002.

Kate M. Fox, Nancy D. Freudenthal, Davis & Cannon, Cheyenne, WY, Peter A. Bjork, Robert Charles Mathes, Darin

Boyd Scheer, Bjork, Lindley, Danielson & Little, Denver, CO, for Plaintiff.

Weston W. Reeves, Reeves & Miller Park Street Law Office, Casper, WY, Randall T. Cox, Gillette, WY, Mark W. Gifford, Casper, WY, for Defendants.

ORDER GRANTING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

BRIMMER, District Judge.

This case arises out of various oil and gas leases, subleases, and farmout agreements between the parties, as well as the royalties arising thereon. The case is now before this Court on Plaintiff's Motion for Partial Summary Judgment, Defendant Guthrie's Motion for Summary Judgment, and Defendants Mission Resources, Torch Acquisition Co., Torch Energy Advisor and Express Acquisition's Motion for Summary Judgment. After reading the briefs, hearing oral argument, and being fully advised on the premises, the Court FINDS and ORDERS as follows:

Parties and Jurisdiction

Plaintiff Paul F. Sawyer is an individual domiciled in Bailey's Harbor, Wisconsin. Plaintiff owns several oil and gas lease-hold interests in Campbell County, Wyoming. Defendant Michael T. Guthrie ("Guthrie") resides in Mississippi and Florida. Guthrie is the sole proprietor of MTG Operating Company, which does business in Mississippi and Wyoming. Defendant Express Acquisition Company ("Express") is a Delaware corporation with its principal place of business in Texas. Express was formerly known as 1993 Offshore Limited Partnership. Defendant Torch Energy Advisors Incorporated ("Torch Energy") is a Delaware corporation with its principal place of business in Texas. Defendant Torch Energy has conducted business in Wyoming individually and through Defendant Express with regard to the real and other property interests located in Campbell County. Defendant Torch Acquisition Company ("Torch Acquisition") is a Delaware corporation with its principal place of business in Texas. As the corporate parent of Defendant Express, Torch Acquisition has conducted business in Wyoming with regard to the real and other property interests located in Campbell County. Defendant Mission Resources Corporation ("Mission") is a Delaware corporation formerly known as TEAI Oil & Gas Company ("TEAI"). Mission has conducted business in Wyoming as TEAI and by and through Torch Energy with regard to the real and other property interests located in Campbell County which are the subject of this action.

Jurisdiction is proper in this Court pursuant to 28 U.S.C. § 1332 as the matter in controversy exceeds $75,000, exclusive of interests and costs, and the matter is between parties who are citizens of different states. Venue is proper pursuant to 28 U.S.C. § 1391.

Background

On August 1, 1990, Jack F. Overstreet obtained two oil and gas leases (the "1990 Leases") from the Lynde Trust ("Lynde Lease") and the Stuarts ("Stuart Lease") which granted interests in approximately 2,745 acres located in Townships 47 and 48 North, Range 72 West, Campbell County, Wyoming. Each of the 1990 Leases had an initial term of approximately five years, with the Lynde Lease to expire on August 1, 1995 and the Stuart Lease to expire on February 1, 1996 — unless the leases were held by production in accordance with their terms.

Overstreet assigned 100% of the working interest in the 1990 Leases to Plaintiff Sawyer on August 1, 1990. On December 3, 1991, Plaintiff entered into an Option Farmout Agreement with American Oil and Gas Corporation ("AOG") for the 1990 leases ("AOG Farmout"). This agreement was to expire on December 31, 1993, but the parties renegotiated the date so that the agreement would not expire until December 31, 1994. Prior to this expiration date, AOG drilled fifteen producing gas wells.

On July 22, 1992, Plaintiff assigned ("1992 Assignment") 100% of his interest in the shallow rights portion ("Shallow Rights") (surface to 2,000 feet below the surface) of the 1990 leases to AOG, subject to the terms of the AOG Farmout, and with retention of a 5% overriding royalty¹ in the Shallow Rights and retaining all rights to the lands below 2,000 feet ("Deep Rights"). Through a series of assignments in March of 1994, AOG assigned 100% of their interest in the 1990 Leases to Defendant Guthrie. Guthrie assigned 66.6666667% of his working interest in both producing and non-producing properties under the 1990 Leases to 1993 Offshore Limited Partnership. On December 31, 1994, 1993 Offshore Limited Partnership merged into Defendant Express.

With regard to the land included in the 1990 Leases, Plaintiff entered into a Farmout ("Express Farmout") agreement with Defendants Guthrie and Express on May 19, 1995. Between May 1, 1995 and August 1, 1996, five wells were permitted and four wells were drilled by Torch Operating Company on lands covered by the 1990 Leases. Defendant Guthrie was a minority working interest owner in all four wells until he sold his interest to Koch Exploration in August, 1996. Plaintiff continues to receive royalties on these wells.

On February 8, 1996, the Stuart Lease expired without any wells having been drilled. The Lynde Lease expired on August 1, 1996 as to all lands not then included in producing or shut-in well spacing units or unitized areas ("non-producing acres") which encompassed approximately 2,000 acres of the original 2,745 acres covered by the 1990 Leases. Nineteen producing wells on approximately 745 acres continue to provide Plaintiff with income. Of these nineteen wells, fifteen are AOG wells and four are Torch wells. Plaintiff retains his rights under the terms of the 1990 Leases to the approximately 745 acres upon which the nineteen producing wells exist.

On October 7, 1996, the Lynde Trust leased some of the lands originally covered in the 1990 Leases together with other lands that had not been the subject of the 1990 Leases to Overstreet ("1996 Lynde Lease"). The total acreage covered by this lease was 3,664. In mid-October 1996, the Stuart family leased lands that had previously comprised a portion of the 1990 Leases, together with other land which had not been the subject of the 1990 Leases, to Overstreet ("1996 Stuart Lease"). Subsequently, Overstreet assigned the 1996 Stuart and Lynde Leases (collectively "1996 Leases") to Guthrie. Since acquiring the 1996 Leases, Defendant Guthrie has drilled 43 wells upon land which was included in both the 1990 Leases and the 1996 Leases, resulting in substantial production.

Plaintiff claims that some or all of the Defendants failed to preserve or timely reassign interests obtained in the 1990 Leases as required in the subsequent agreements and that in relation to the 1996 Leases, Defendant Guthrie participated in a washout transaction² in order to destroy Plaintiff's overriding royalty interest in the 1990 Leases. Plaintiff contends that he is entitled to royalties from wells on the 1996 Leases, which rest upon land which was subject to the 1990 Leases, pursuant to the extensions and renewals clause contained in the 1990 Leases which reserved his overriding royalty interest.

Plaintiff claims that he first discovered that he had been washed out of the 1990 Leases when he traveled to Wyoming from his home in Wisconsin and saw that new wells were operating on land which had been the subject of the 1990 Leases, but from which he was not receiving royalties. Plaintiff claims that since he was still receiving royalties from other wells on the 1990 Leases, he had no reason to believe that he was being cheated on other producing wells.

Plaintiff brings the following claims: 1) against Defendants Guthrie and Express for breach of contract, as they had agreed, pursuant to the 1992 Assignment, AOG Farmout, and Express Farmout to preserve Plaintiff's shallow rights and not cause a termination of the 1990 Leases by failing to comply with the terms of the 1990 Leases, including not actively drilling and thus allowing the lease to expire as to non-producing wells; 2) breach of good faith and fair dealing against Defendants Guthrie and Express because the 1992 Assignment, AOG Farmout, and Express Farmout have implied duties of good faith and fair dealing, and they breached these duties to Plaintiff by failing to establish production in paying quantities or continuously prosecute drilling and/or reworking operations as required by the 1990 Leases — which constitutes actions which are inconsistent with the agreed-upon common purpose and the justified expectations of Plaintiff; 3) breach of fiduciary duty as to Defendant Guthrie in that the AOG Farmout was a joint business relation, Defendant Guthrie succeeded to AOG's interests and obligations under the Express Farmout, and Guthrie expressly agreed that he would not cause the termination of the 1990 Leases by failing to comply with their terms (i.e. not continuing to drill). Plaintiff alleges that Guthrie had a duty of utmost good faith due to the relationship which arose from the joint venture, and Guthrie was forbidden from using that knowledge or interest to prevent Plaintiff from receiving payment from the venture. Plaintiff claims that Guthrie participated in conduct designed to extinguish Plaintiff's interests so that Guthrie could obtain those interests for himself, which constitutes a washout transaction; 4) quiet title under Wyo.Stat. 1-32-202 et seq. providing that in an action to recover real...